Abstract

Romer's (1990) influential hypothesis argues that uncertainty associated with the stock market crash in October 1929 caused a collapse in durable goods spending in 1930. On the basis of alternative indicators of uncertainty, new measures of expenditures, and two models of consumption, we contend that income uncertainty also reduced nondurable spending and had powerful detrimental effects beyond 1930. Income uncertainty peaked in the year following the gold standard crisis of September 1931 and contributed substantially to the more severe durable and nondurable spending declines of 1932.